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  • Apple’s Best Quarter Ever, But the Sky is Falling

    January 22nd, 2008

    I know Wall Street dwells on negatives these days, particularly because of economic troubles in the U.S. Indeed, Apple’s stock tanked in after-hours trading after its quarterly financials were released Tuesday afternoon. But there are an awful lot of good things to talk about, even if investors don’t see it that way.

    First and foremost, some 2,319,000 Macs were sold, a record number. Indeed, this is one huge increase over last year, with the numbers coming in at 44% unit growth and 47% revenue growth. What’s more, the iMac showed surprising strength, so it wasn’t all note-books. In saying that Apple reports that sales for the MacBook Air “are very strong.”

    In fact, Apple’s total sales for the quarter totaled $9.6 billion, or $1.76 per diluted share, which represents a 58% increase over last year. It’s also a record for Apple, but maybe analysts got so overwrought in their projections that Apple couldn’t possibly meet their expectations however the figures turned out.

    Now we all know iPhones are moving at a great clip, with 2,315,000 million recorded over the period. What I’m wondering, though, is how this hot-selling gadget is impacting the iPod, since Apple sold 22,121,000 of them the last quarter. That was an increase of a mere five percent over the year ago quarter, although revenue growth came in at 17%, meaning that the higher priced models were preferred.

    So what does this all mean? Has the iPod’s stellar growth ceased for good, or is this just a temporary aberration? Since Apple sits way at the top of the heap in this market space, is it possible sales of all digital music players have reached the saturation point? Maybe it’s true the great majority of people who want these gadgets have already purchased them, and now the iPhone will come into its own as the iPod’s ultimate successor.

    During its conference call with financial analysts, Apple did its best to put a positive spin on what seems to be somewhat negative news. The iPod touch, for example, has come to be regarded as “a mainstream Wi-Fi mobile platform.” That takes it way beyond playing music and videos, which is why the newest versions will incorporate Mail, Google Maps and widgets. So you have a pocket-sized wireless computing device that will differ from the iPhone only in its lack of telephone features.

    But is that just market speak, or does it somehow represent the future direction of the iPod in relation to the iPhone? Certainly adding more capabilities to this device would seem to make sense, if it can be done affordably and in a way that sells product.

    Then again, isn’t that what the analysts were suggesting a few years ago, that music players would largely fade away and that mobile phones with music playback features would ultimately take over? I mean, why would someone want to carry two pocket-sized gadgets of this sort, when one can do it all? At least, that was the argument the tech pundits have frequently voiced.

    Of course, the previous efforts, such as the LG Chocolate touted by Verizon Wireless, have been pathetic. They end up being bad music players and mediocre phones. When Apple delivered the iPhone, they turned the entire market upside down. Now we have some imitators, but Apple has set a possible future trend. And if you don’t want to pay extra for an integrated phone, there’s always the iPod touch.

    So just how do you rate iPod sales from a realistic standpoint? Do you merge the results for the iPhone, since it incorporates an iPod? Would that make Wall Street happy?

    Or are they just so jaded by the state of the economy that there’s nothing Apple could possibly do to keep its stock price out of the toilet, at least for now. It is possible, of course, that Apple’s lower-than-expected guidance for the current quarter — with expected sales of $6.8 billion and earnings of 94 cents per share — was the straw that broke the camel’s back. You see that was also below the Street’s estimates.

    I guess it might take another quarter to see how it all shakes out, and allow the financial community to come back down to earth. It’ll also be interesting to see how this new Wi-Fi mobile platform fares in the marketplace, particularly if Apple adds some additional configurations to the iPod touch line.



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